With rent, what gets taxed?

[Stephen Shelton]

I have a question on what gets taxed when it comes to rental income.  Of course there are loads of other factors but I'm looking for general answers for someone living in the US without state income taxes.

For example, say I have a single-family home bought for the purpose of being a rental property that works as follows:

Rent: $1000 month / $12,000 annual

And it breaks down like this:

$2000 - property tax

$2000 - insurance

$2000 - mortgage principal

$2000 - mortgage interest

$2000 - repairs

$2000 - unused/profit

Which pieces are taxed? Would the property taxes, insurance, mortgage interest, and repairs be considered untaxable business expenses? 

I assume the final unused/profit $2000 would be taxed like regular income, but what about the mortgage principal?  Since it represents owning the renter buying me a piece of the property itself is it considered income?

Thanks for some clarity

[Jon Holdman]

Nope.  The taxable income is:

total collected income (rent, mostly, but might include utilities, late fees, etc)

less

total expenses (taxes, insurance, repairs, mortgage interest (only, not principal), legal fees, utilities, etc.)

and less 

depreciation (based on the value of the improvements when you original bought the house plus money you spent getting the place ready to rent, and also capitalized items like roofs, flooring, etc.)

You pay the tax on this amount, if its positive.   If its negative, you may be able to offset other income with this "passive loss".

Your cash flow is a different number because depreciation is a non-cash "expense".  Further, if you have a big capital item, like new flooring, you'll have to lay out that cash in one year, but it gets deducted over five years (six tax years, unless you spend the money on the first day of your tax year.)  It doesn't matter what you do with the cash flow, it has no effect on the taxable income.

Principal payments are relevant for your cash flow, but not for profit.  Principal payments are simply transfers from one of your accounts (e.g., your bank account) to a different account (equity in the property.)